<

Why this week is all about earnings for REITs like Annaly

Part 2
Why this week is all about earnings for REITs like Annaly (Part 2 of 6)

Why last week’s releases, earnings, and FOMC were so important

Good ISM data and an okay jobs report

Last week had a lot of very important economic data, earnings, and the FOMC meeting. On Wednesday, we got the advance estimate for second quarter GDP, which came in at 4%. The advance estimates have been revised downward lately, so it will be interesting to see if this number sticks. On Thursday, we had the Employment Cost Index, which upset the bond market. And then Friday, we had the employment situation report, which showed modest payroll growth and no wage inflation.

Nonfarm PayrollsEnlarge Graph

On the earnings front, we heard from mortgage REIT heavyweight American Capital Agency (AGNC) and from West Coast based homebuilder Standard Pacific Group (SPF)

Commercial REITs will be encouraged by economic strength

Commercial real estate investment trusts (or REITs) in the retail space, like Simon Property Group (SPG) and General Growth Properties (GGP), focused on the personal income and personal spending data

Office REITs like Vornado Realty Trust (VNO) focused on pretty much all of the economic data, particularly the jobs report and the ISM data.

Implications for mortgage REITs

Mortgage REITs, like Annaly (or NLY) and American Capital (or AGNC), are driven by interest rates. Rates have been in a tight trading range.

Last week had a lot of data, but not a lot of motion in rates. As a matter of fact, after it was all said and done, the ten-year bond was more or less unchanged on the week.

Implications for homebuilders

Last week, we heard from Standard Pacific Group (SPF). The pattern of low (or negative) unit order growth combined with big increases in average selling prices is continuing.

It certainly appears the builders are happy to keep increasing prices and willing to live with lower unit growth. At some point, that game won’t work anymore. But for now, it appears the next quantum leap in housing—getting back to a semblance of normalcy—will be a 2015 event.

The Realist Discussions